Draghi’s Greek Option

ForexCrunch
is a site all about the foreign exchange market, which
consists of tutorials, basics of the forex market, daily
and weekly forex analysis, technical analysis, forex
software posts, insights about the forex industry and
whatever is related to Forex.

Recent Posts

The pledge to do “everything to save the euro”
accompanied by “and believe me, it will matter” are still echoing
and holding the euro above previous levels, despite the
doubts.

If the president of the ECB wants to do everything, he could
contribute to extinguishing a burning August fire in Greece.

Greece is running out of money

The Hellenic Republic has a bond repayment of over 3 billion
euros due on August 20th. Does it have the
money? No. The troika is still in Athens, sitting with the Greek
government and trying to find ways that Greece can reach some of
the targets.

Paying Greece the next tranche of aid depends on Greece meeting
its targets, which it missed of course. The
money is delayed at the moment.

But who does Greece owe this specific August 20th money
to? The ECB.

Talk about a haircut for the ECB has been circulating
recently. As part of the second bailout program, private
bondholders took huge losses of nearly 75% on Greek debt. The
Greek government now owes money mostly to the public or official
sector. This is includes the ECB.

The ECB also bought Greek bonds in the markets. When the times
came for the bond swap, the ECB was exempt of haircuts. This
seniority of the ECB and the subordination of the private sector
later backfired as private money fled out of Spain and Italy. The
recent EU Summit decided on no seniority, learning some lessons,
perhaps too little and too late.

Fixing the seniority issue

Draghi has a chance to fix the seniority error made earlier in
the year. He could start by taking a haircut on Greek debt,
or at least postponing the payment date.